Is Another Obama Administration Scandal About to Explode?

While strong cases can be made for both Benghazi and Fast and Furious, most voters consider Barack Obama’s misuse of the IRS to be his administration’s worst scandal so far. But, as we wrote last year, targeting of conservative non-profits for harassment is not the only dimension of the IRS scandal. In addition, there is strong reason to believe that one or more White House political appointees have illegally accessed private taxpayer information and used it for political gain.

Austan Goolsbee directed Obama’s Economic Recovery Advisory Board and later chaired his Council of Economic Advisers. In August 2010, Goolsbee conducted a telephone press briefing in which, according to the Washington Post, he purported to reveal confidential taxpayer information:

So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax.

There are three possibilities here: either Goolsbee just made up the claim that Koch Industries doesn’t pay corporate income taxes; or he learned Koch’s tax status from some proper, legal source; or else he illegally accessed Koch’s tax returns and used the information he learned for political purposes in a call with reporters.

Koch immediately objected to Goolsbee’s statement and requested an explanation. In response, Goolsbee has never come up with a coherent account of where he got the information that he passed on to the press. First, as reported by the Weekly Standard:

[A]n anonymous White House official told Ben Smith, then a reporter at Politico, that the claim was based on testimony to the President’s Economic Recovery Advisory Board and publicly available sources, such as Forbes magazine and Koch Industries’ website.

But this turned out to be false. There was no such testimony, and there is no such publicly available information on Koch Industries’ corporate status.

Next, in May 2013, Goolsbee took to Twitter to try to explain:

This explanation made no sense. If you follow the link, the story has to to with some other Koch–not Charles or David–and Florida state taxes, not federal corporate income taxes. Goolsbee apparently thought better of this defense and deleted his tweet.

In the meantime, Republicans on the Senate Finance Committee asked for an investigation, and the Treasury Department’s Inspector General looked into the matter and wrote a report. On August 10, 2011, a TIGTA [U.S. Treasury Inspector General for Tax Administration] Special Agent sent an email to Koch Industries, stating that “the final report relative to the investigation of Austan Goolsbee’s press conference remark is completed, has gone through all the approval processes, and would now be available through a [FOIA] request.”

However, when Koch Industries asked for a copy of the report, the Obama administration refused, asserting that it could not legally turn the report over, because it would disclose the identity of the wrongdoers, and it also contains confidential taxpayer information…about Koch Industries! The shamelessness of the Obama administration is almost beyond comprehension.

So, for more than three years Obama has managed to keep the lid on this scandal by hiding the Inspector General’s report. Along with Koch Industries, the Washington Free Beacon and a government watchdog group called Cause of Action made Freedom of Information Act requests for documents relating to the Inspector General’s investigation. When the Obama administration refused to produce any responsive information, Cause of Action sued.

On September 29, a federal district judge in Washington ruled in Cause of Action’s favor. Cause of Action had asked for all documents related to any investigation by TIGTA into the unauthorized disclosure of tax return information to anyone in the Executive Office of the President. The Obama administration made a “Glomar response,” which means that it would neither confirm nor deny the existence of any responsive records, on the theory that doing so would itself reveal information protected under FOIA.

The court’s ruling was limited: it found that the administration has already admitted that an investigation took place, and sent the issue back to TIGTA to “determine whether the contents — as distinguished from the existence – of the officially acknowledged records may be protected from disclosure” by a FOIA exemption.

The wheels of justice, as they say, grind slowly. As with other Obama administration scandals, Barack’s effort is to run out the clock. It may be that by the time we learn the full extent of the Obama administration’s lawlessness, the administration will be over. But the remaining options are not good: either Austan Goolsbee, a senior adviser to Obama, made up a smear of Koch Industries out of whole cloth, or else Obama’s IRS allowed the White House illegal access to confidential taxpayer data for political purposes. That’s a crime for which at least two people should go to jail.

On Goolsbee’s Twitter account, several people tweeted links to news stories about the D.C. court’s decision. Goolsbee’s response was from outer space:

“Thoroughly debunked”? That is a ludicrous assertion: in fact, Goolsbee has yet to come up with a consistent, let alone coherent, account of where he got the information that he shared with reporters in 2010. If the truth ever comes out, we can be confident that it will be highly damaging to Mr. Goolsbee.

This, too, should be noted: I don’t know what corporate form Koch Industries now takes for tax purposes. The New York Times reported earlier this year that as of the early 1990s it was evidently a C corp, as it…

paid [corporate income taxes] at quite high effective rates, ranging from 34.1 percent to 38.3 percent, that could not be consistent with the incidental liabilities of an S corporation.

It is conceivable that at some later time Koch Industries began filing as an S corp. It might be eligible to do so, as, unlike virtually all other major corporations, it has fewer than 50 shareholders. (Take this with a grain of salt, I am no tax lawyer.) But here is the point: being an S corp doesn’t mean you get to avoid paying taxes. It means that the corporation’s net income flows through to the shareholders, and they pay individual income taxes on the company’s profits. If Koch Industries is an S corp, then Charles and David Koch pay individual income taxes, at the highest possible rates, in almost unfathomable amounts.

Which means that the point Goolsbee made to reporters back in 2010 was basically stupid. It is true that S corps and LLCs do not pay corporate income taxes, but so what? Their owners pay taxes on the money the companies make. My law firm (like virtually all law firms) is an LLP. The firm itself pays no income taxes, even though it makes quite bit of money. Is that some kind of scandal? Of course not. The partners in the firm all pay taxes on their shares of the income. If Koch Industries is an S corp, the same principle applies–S corps are taxed like partnerships–and Goolsbee was merely trying to fool unsophisticated reporters in order to gain political traction for the administration’s crazed attacks on Charles and David Koch.

So, to sum up: it is likely that members of the Obama administration committed federal crimes by illegally sharing confidential taxpayer information with the White House for political purposes. With luck, we will find out for sure before our next president is inaugurated. The alternative is that a high-ranking White House official fabricated a baseless smear against the administration’s political opponents and passed it on to reporters to further the administration’s political agenda. Any way you look at it, this is a shameful episode in the already bleak history of the Obama administration.